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The partnership as a business often must register with all states where it does
business. Each state may have several different kinds of partnerships that you
can form, so it's important to know the possibilities before you register.1
Income tax is not paid by the partnership itself. After profits or losses are divided
among the partners, each partner pays income tax on their individual tax return.4
Types of Partnerships
Before you start a partnership, you will need to decide what type of
partnership you want. There are three different kinds that are commonly set up.
Forming a Partnership
Partnerships are usually registered with the state or states in which they do
business, but the requirement to register and the types of partnerships available
vary from state to state. Partnerships use a partnership agreement to clarify the
relationship between the partners; what contributions, including cash, they will
make to the partnership; the roles and responsibilities of the partners; and each
partner's distributive share in profits and losses.1 2 This agreement is often just
between the partners; it's not generally registered with a state.